Shenango Tp. Bd. of Sup'rs v. Pennsylvania Public Utility Com'n

• Decision Date: 20 December 1996
• Citation: 686 A.2d 910
• Parties: SHENANGO TOWNSHIP BOARD OF SUPERVISORS, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.
• Court: Pennsylvania Commonwealth Court

Page 910

686 A.2d 910

SHENANGO TOWNSHIP BOARD OF SUPERVISORS, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.

Commonwealth Court of Pennsylvania.

Argued Nov. 21, 1996.

Decided Dec. 20, 1996.

LeeAnn A. Fulena, New Castle, for petitioner.

Susan D. Colwell, Assistant Counsel, Harrisburg, for respondent.

Anthony C. DeCusatis, Philadelphia, for intervenor, Pennsylvania-American Water Company.

Before KELLEY and LEADBETTER, JJ., and NARICK, Senior Judge.

NARICK, Senior Judge.

Shenango Township Board of Supervisors (Shenango) appeals from the order of the Pennsylvania Public Utility Commission (PUC) that denied Shenango's exceptions to the Administrative Law Judge's (ALJ) determination, thus adopting the ALJ's determination and dismissing Shenango's complaint. We affirm.

In late 1987 and early 1988, Shenango made preliminary inquiries to the Pennsylvania-American Water Company (PAWC) regarding its desire to install water lines within the Township of Shenango (Township) as a means of promoting economic development. Shenango's interest later expanded to include an area where Township residents were experiencing problems with their water wells. Shenango stated that it wanted to explore the possibility of setting itself up as a separate public water distribution system, installing water mains to serve its residents, purchasing all of its water from PAWC at a "bulk" rate and reselling it to individual retail customers. PAWC did not wish to negotiate as it refused to be a wholesale provider to any entity that would resell its water to ultimate purchasers located within PAWC's certified service area. However, in the course of subsequent discussion, PAWC informed Shenango that it would extend water mains within the Township in accordance with the terms of its tariff on file with the PUC. PAWC's PUC-approved tariff rule concerning main extensions provided, in pertinent part, that PAWC would fully fund the installation of thirty-five feet of main line for each bona fide service applicant. The applicant would have to advance, on a pre-tax basis, the cost of any facilities in excess of thirty-five feet. Applicants who made such an advance were entitled to receive a refund for each additional customer who connected to the applicant-funded main extension within the next ten years.

Following further negotiations, PAWC and Shenango entered into an agreement, dated September 12, 1991, (Agreement) setting forth their respective rights and obligation with regard to the installation of water mains within the Township and the furnishing of water service to prospective customers.

The Agreement provided that Shenango would construct the water facilities, consisting of approximately 35,600 feet of main extension and a booster pumping station and would lease the Township's water facilities to PAWC for a term of up to twenty years. In consideration of the lease, PAWC agreed to supply the total water requirements to the customers requesting service from the Township water facility, install at its sole cost the service connections and meters to serve such customers, and operate and maintain the facilities during the term of the lease. The PUC approved the Agreement and the water facilities were completed and placed in service in 1993.

In 1994, Shenango filed a complaint with the PUC seeking immediate payment from PAWC for the cost of constructing the Township water facilities. As a basis of its complaint, Shenango relied upon 52 Pa.Code § 69.171, which set forth the PUC's policy regarding line extensions, issued by the PUC on August 20, 1992, (1992 Policy Statement) which Shenango interpreted as requiring all utility companies to extend service at their cost. ¹

The 1992 Policy Statement prompted the filing of several complaints by litigants who interpreted its broad, general language as calling into question the validity of previously-approved main extension rules contained in various utilities' tariffs. As a consequence, on December 8, 1993, the PUC enunciated rule making to rescind the 1992 Policy Statement and on December 28, 1995, issued a final order. See 52 Pa.Code § 65.21 and § 65.22. The order reiterated the PUC's conclusion that a utility could lawfully require the party requesting an extension of utility facilities to bear the cost thereof, if that party is not a "bona fide service applicant," if the request entails "special utility service," or if the facility extension would be "uneconomic or unreasonable absent an appropriate customer contribution."

Shenango later amended its complaint requesting additionally that the PUC exercise its authority under Section 508 of the Public Utility Code, 66 Pa.C.S. § 508, to unilaterally revise the Agreement.

At the time the ALJ issued his initial decision, the PUC had not yet rescinded the 1992 Policy Statement. However, the ALJ concluded that the policy statement was inapplicable to the facts because it found that Shenango's request for line extension was not made by a "bona fide service applicant" as a "bona fide service applicant" was an applicant applying for utility services to a primary residence or place of business. The ALJ also rejected Shenango's request for contract revision under Section 508 of the Public Utility Code because: 1) the PUC was fully aware of the "common law" dealing with utility line extension which the 1992 Policy Statement proposed only to summarize; and 2) the Agreement was entered into pursuant to the authority of PAWC's tariff which had been fully approved by the PUC, again with full knowledge of the dictates of the "common law."

By the time Shenango filed exceptions to the ALJ's initial decision, the PUC had entered its final order rescinding the 1992 Policy Statement; nonetheless, the PUC did analyze Shenango's claims in light of the policy statement and affirmed the ALJ's holding that the 1992 Policy Statement was not applicable to the facts of the case because 1) Shenango was not a "bona fide service applicant," and 2) because the Township project required the construction of a booster pump station which it considered a "special utility service." Furthermore, the PUC held that even if the 1992 Policy Statement were to be applicable to the case, the 1992 Policy Statement postdated the written Agreement of the parties and thus, the PUC determined that the facts of the case did not justify the exercise of its powers under Section 508 of the Public Utility Code.

On appeal to this Court, ² Shenango argues that the PUC erred in denying its exceptions in adopting the ALJ's determination that Shenango was not a "bona fide service applicant." Shenango also asserts that the 1992 Policy Statement should be made applicable retroactively even though it postdated the Agreement.

The PUC determined that it would not unilaterally alter the Agreement pursuant to its authority under Section 508 of the Public Utility Code. ³ Section 508 does not establish precise guidelines for the exercise of the PUC's contract reformation authority but it does give the PUC broad and flexible range to find that a contract's terms are "unjust, unreasonable, inequitable, or otherwise contrary or adverse to public interest...." 66 Pa.C.S. § 508. In Columbia Gas of Pennsylvania, Inc. v. Pennsylvania Public Utility Commission, 112 Pa.Cmwlth. 611, 535 A.2d 1246, 1248 (1988), we interpreted Section 508 as follows:

Inasmuch as Section 508 of the Code, 66 Pa.C.S. § 508, gives the PUC the authority to vary, reform or revise contracts upon a fair, reasonable and equitable basis, we cannot say as a matter of law that the PUC either abused its power or misapplied the law in this case.

Further, Section 508 must be read in pari materia with other sections of the Public Utility Code that may be...